Cathie Wood bet early on Bitcoin and Tesla, and her ARK Innovation Fund is up 75% in 2020.
Read more Andre Cronje, the prolific coder and creator of Yearn, said he’s quit the project – and decentralized finance (DeFi) altogether – out of frustration with its realities.
Read more Bitcoin is up 54% this year on speculation that trillion-dollar stimulus efforts by governments and central banks will lead to inflation.
Read more A lot has been made of the open memo that Coinbase CEO Brian Armstrong published nearly two weekends ago, essentially barring political activism at work because he sees it as a distraction. He also made it clear that employees who disagreed with the decision — and he foresaw that some would not be happy — were free to leave.
“I recognize that our approach is not for everyone, and may be controversial. I know that many people may not agree, and some employees may resign. I also know that some of what I’ve written above will be misinterpreted, whether accidentally or on purpose. But I believe it’s the right approach for Coinbase that will set us up for success long term, and I would rather be honest and transparent about that than equivocate and work in a company that is not aligned,” he wrote.
Perhaps owing to an almost immediate backlash, Armstrong sent a separate, internal memo the next day detailing separation packages for employees who might be upset and looking for the exits. Coinbase was willing to be very generous, too, offering four months’ severance pay for those who have been at the exchange for less than three years, and paying longer-term employees six months of severance. (Worth noting: Coinbase also gives employees up to seven years to exercise their stock options.)
Whether Armstrong expected that more than 60 employees of Coinbase’s staff of 1,200 would take him up on the offer is something only he knows. As he disclosed in a follow-up post yesterday, that’s how many people have alerted the company by its October 7th deadline that they are quitting, and Coinbase expects the number to inch higher, based on a “handful” of ongoing conversations.
Either way, if I were Armstrong, I might be a little nervous about that number. Though small in the grand scheme of the company’s ambitions, that’s 60-plus people who have Coinbase on their resume, institutional knowledge about the company in their head, and potentially money in the bank, between their severance and equity.
More worrisome, they might also have a bit of an axe to grind against a company that told them it was changing the world, then changed the terms of its pact with them in the middle of an already trying time for most people.
That frustration — if it exists — could come out in potential leaks to the press, though presumably every employee had to sign a lengthy non-disparagement agreement on their way out the door.
The bigger threat is that one or numerous of these employees might now start their own crypto-related business, or else join rival companies that could use their skills. (Non-compete agreements are famously difficult to enforce in the state of California.) As crypto enthusiasts like to say, it’s still early innings when it comes to decentralized finance.
Certainly, taking on Coinbase is a very tall order at this point. Two years ago, when the company closed on $300 million in Series E funding, it did so at a post-money valuation of more than $8 billion, putting it leaps and bounds ahead of numerous other crypto exchanges.
No matter what you think of Armstrong’s new policy, there aren’t a lot of founders with the stuff to grow a company as strong and fast as he has, either.
Still, it happens all the time that people launch companies to take down other companies. It’s human nature.
Given that a number of former Coinbase employees has already raised funding for projects after leaving Coinbase, combined with so many investing dollars sloshing around out there looking to be put to use, the risk of this happening to Coinbase because of Armstrong’s memo and its aftermath may be small. But it isn’t zero.
The California judge in the legal skirmish between Epic Games and Apple has denied Epic’s request that Apple be forced to reinstate Fortnite in the App Store, but did affirm that Apple cannot take action against the Epic Games developer accounts used to bring Unreal Engine developers access to Apple devices.
The court’s decision re-affirmed its proclamation from late August in a court hearing where Epic Games’ lawyers sought to obtain a temporary restraining order after Apple informed the Fortnite developer that they would be kicking the company off the App Store and terminating all of their company accounts.
The judge noted that “[p]reliminary injunctive relief is an extraordinary measure rarely granted,” and detailed that they were granting in part and denying in part Epic’s request, noting that “Epic Games bears the burden in asking for such extraordinary relief.”
From the filing:
Epic Games has strong arguments regarding Apple’s exclusive distribution through the iOS App Store, and the in-app purchase (“IAP”) system through which Apple takes 30% of certain IAP payments. However, given the limited record, Epic Games has not sufficiently addressed Apple’s counter arguments. The equities, addressed in the temporary restraining order, remain the same.
This confirms that Fortnite will not return to the App Store before the trial begins; a court filing this week signaled that the two companies will go to trial on May 3, 2021.
Both sides aimed to take their win and ignore their loss in the mixed decision.
“Epic Games is grateful that Apple will continue to be barred from retaliating against Unreal Engine and our game development customers as the litigation continues. We will continue to develop for iOS and Mac under the court’s protection, and we will pursue all avenues to end Apple’s anti-competitive behavior,” an Epic Games spokesperson said in a statement.
“Our customers depend on the App Store being a safe and trusted place where all developers follow the same set of rules,” an Apple spokesperson told TechCrunch in an emailed statement. “We’re grateful the court recognized that Epic’s actions were not in the best interests of its own customers and that any problems they may have encountered were of their own making when they breached their agreement. For twelve years, the App Store has been an economic miracle, creating transformative business opportunities for developers large and small. We look forward to sharing this legacy of innovation and dynamism with the court next year.”
Here’s another edition of “Dear Sophie,” the advice column that answers immigration-related questions about working at technology companies.
“Your questions are vital to the spread of knowledge that allows people all over the world to rise above borders and pursue their dreams,” says Sophie Alcorn, a Silicon Valley immigration attorney. “Whether you’re in people ops, a founder or seeking a job in Silicon Valley, I would love to answer your questions in my next column.”
Extra Crunch members receive access to weekly “Dear Sophie” columns; use promo code ALCORN to purchase a one or two-year subscription for 50% off.
Dear Sophie:
I’ve been reading about the new H-1B rules for wage levels and defining what types of jobs qualify that came out this week. What do we as employers need to do to comply? Are any other visa types affected?
— Racking my brain in Richmond! 
Dear Racking:
As you mentioned, the Department of Labor (DOL) and the Department of Homeland Security (DHS) each issued a new interim rule this week that affects the H-1B program. However, the DOL rule impacts other visas and green cards as well. These interim rules, one of which took effect immediately after being published, are an abuse of power.
The president continues to fear-monger in an attempt to generate votes through racism, protectionism and xenophobia. The fatal irony here is that companies were in fact already making “real offers” to “real employees” for jobs in the innovation economy, which are not fungible and are actually the source of new job creation for Americans. A 2019 report by the Economic Policy Institute found that for every 100 professional, scientific and technical services jobs created in the private sector in the U.S., 418 additional, indirect jobs are created as a result. Nearly 575 additional jobs are created for every 100 information jobs, and 206 additional jobs are created for every 100 healthcare and social assistance jobs.
The DOL rule, which went into effect on October 8, 2020, significantly raises the wages employers must pay to the employees they sponsor for H-1B, H-1B1 and E-3 specialty occupation visas, H-2B visas for temporary non-agricultural workers, EB-2 advanced degree green cards, EB-2 exceptional ability green cards and EB-3 skilled worker green cards.
The new DHS rule, which further restricts H-1B visas, will go into effect on December 7, 2020. DHS will not apply the new rule to any pending or previously approved petitions. That means your company should renew your employees’ H-1B visas — if eligible — before that date.
The American Immigration Lawyers Association (AILA) has formed a task force to review the rules and help with litigation. Although both the DOL and DHS rules will likely be challenged, they will likely remain in effect for some time before any litigation has an impact. They are actively seeking plaintiffs, including employees, employers and representatives of membership organizations who will be hurt by the new rules.
Welcome back to Human Capital, where we discuss the latest in labor, diversity and inclusion in tech.
This week’s eyebrow-raising moment came Wednesday when the U.S. Department of Labor essentially accused Microsoft of reverse racism (not a real thing) for committing to hire more Black people at its predominantly white company.
And that wasn’t even the most notable news items of the week. Instead, that award goes to Uber engineer Kurt Nelson and his decision to speak out against his employer and urge folks to vote no on the Uber-sponsored ballot measure in California that aims to keep drivers classified as independent contractors. I caught up with Nelson to hear more about what brought him to the point of speaking out. You can read what he had to say further down in this newsletter.
But first, I have some of my own news to share — Human Capital is launching in newsletter form on Friday, October 23. Sign up here so you don’t miss out.
Now, to the tea.
Stay Woke
Coinbase loses about 5% of workforce for its stance on social issues
Remember how Coinbase provided an out to employees who no longer wanted to work at the cryptocurrency company as a result of its stance on social issues? Well, Coinbase CEO Brian Armstrong said this week that about 5% of employees (60 people) have decided to take the exit package, but that there will likely be more since “a handful of other conversations” are still happening.
Armstrong noted how some people worried his stance would push out people of color and other underrepresented minorities. But in his blog post, Armstrong said those folks “have not taken the exit package in numbers disproportionate to the overall population.”
Trump’s DOL goes after Microsoft for committing to hire more Black people
Microsoft disclosed this week that the U.S. Department of Labor Office of Federal Contract Compliance Programs contacted the company regarding its racial justice and diversity commitments made in June. Microsoft had committed to double the number of Black people managers, senior individual contributors and senior leaders in its U.S. workforce by 2025. Now, however, the OFCCP says that could be considered as unlawful discrimination in violation of Title VII of the Civil Rights Act. That’s because, according to the letter, Microsoft’s commitment “appears to imply that employment action may be taken based on race.”
“We are clear that the law prohibits us from discriminating on the basis of race,” Microsoft wrote in a blog post. “We also have affirmative obligations as a company that serves the federal government to continue to increase the diversity of our workforce, and we take those obligations very seriously. We have decades of experience and know full well how to appropriately create opportunities for people without taking away opportunities from others. Furthermore, we know that we need to focus on creating more opportunity, including through specific programs designed to cast a wide net for talent for whom we can provide careers with Microsoft.”
This comes shortly after the Trump administration expanded its ban on diversity and anti-racism training to include federal contractors. While this does not fall into the scope of that ban, it’s alarming to see the DOL going after a tech company for trying to increase diversity. However, it does seem that the effects of the ban are making its way into the tech industry.
Joelle Emerson, founder and CEO of diversity training service Paradigm, says she lost her first client as a result of the executive order. While it’s not clear which client it was, many of Paradigm’s clients are tech companies.
Crunchbase report sheds light on VC funding to Black and Latinx founders
It’s widely understood that Black and Latinx founders receive not nearly as much funding as their white counterparts. Now, Crunchbase has shed some additional light on the situation. Here are some highlights from its 2020 Diversity Spotlight report.
Image Credits: Crunchbase
- Since 2015, Black and Latinx founders have raised more than $15 billion, which represents just 2.4% of the total venture capital raised.
- In 2020, Black and Latinx founders have raised $2.3 billion, which represents 2.6% of all VC funding through August 31, 2020.
- Since 2015, the top 10 leading VC firms in the U.S. have invested in around 70 startups founded by Black or Latinx people.
- Andreessen Horowitz and Founders Fund are the two firms with the highest count of new investments in Black or Latinx-founded companies since 2015.
Gig Work
Uber engineer encourages people to vote no on Uber-backed Prop 22
Going against his employer, Uber engineer Kurt Nelson penned an op-ed on TechCrunch about why he’s voting against Prop 22. Prop 22 is a ballot measure in California that seeks to keep rideshare drivers and delivery workers classified as independent contractors. I caught up with Nelson after he published his op-ed to learn more about what brought him to the point of speaking out against Prop 22.
“It was a combination of COVID affecting unemployment and health insurance for a bunch of people, getting close to the election and not having seen anyone who is really former Uber or Uber or former any gig companies saying anything,” Nelson told me.
Plus, Nelson is on his way out from Uber — something that he’s been forthcoming about with his manager. He had already been feeling frustrated about the way Uber handled its rounds of layoffs this year, but the company’s push for Prop 22 was “the final nail in the coffin.”
Uber’s big arguments around why drivers should remain independent contractors is that it’s what drivers want and that it’d be costly to make them employees. Uber has said it also doesn’t see a way to offer flexibility to drivers while also employing them.
“I think it’d be really challenging,” Uber Director of Policy, Cities and Transportation Shin-pei Tsay told me at TC Sessions: Mobility this week. “We would have to start to ensure that there’s coverage to ensure that there’s the necessary number of drivers to meet demand. That would be this forecasting that needs to happen. We would only be able to offer a certain number of jobs to meet that demand because people will be working in set amounts of time. I think there would be quite fewer work opportunities, especially the ones that people really have said that they like.”
But, as Nelson notes, Silicon Valley prides itself on tackling difficult problems.
“We’re a tech company and we solve hard problems — that’s what we do,” he said.
In response to his op-ed, Nelson said some of his co-workers have reached out to him — some thanking him for saying something. Even prior to his op-ed, Nelson said he was one of the only people who would talk about Prop 22 in any negative way in Uber’s internal Slack channels. And it’s no wonder why, given the atmosphere Uber has created around Prop 22.
During all-hands meetings, Nelson described how the executive team wears Yes on 22 shirts or has a Yes on 22 Zoom background. Uber has also offered employees free Yes on 22 car decals and shirts, Nelson said.
As for Nelson’s next job, he knows he doesn’t “want to touch the gig economy ever again,” he said. “I know that for a fact. I’m done with the gig economy.”
Union Life
Kickstarter settles with NLRB over firing of union organizer
Kickstarter agreed to pay $36,598.63 in backpay to Taylor Moore, a former Kickstarter employee who was fired last year, Vice reported. Moore was active in organizing the company’s union, which was officially recognized earlier this year. As part of the settlement with the National Labor Relations Board, Kickstarter also agreed to post a notice to employees about the settlement on its intranet and at its physical office whenever they reopen.
In September 2019, Kickstarter fired two people who were actively organizing a union. About a year later, the Labor Board found merit that Kickstarter unlawfully fired a union organizer.
NLRB files complaint against Google contractor HCL America
It’s been about a year since 80 Google contractors voted to form a union with U.S. Steelworkers. But those contractors, who are officially employed by HCL America, have not been able to engage in collective bargaining, according to a new complaint from the National Labor Relations Board, obtained by Vice.
The complaint states HCL has failed to bargain with the union and has even transferred the work of members of the bargaining unit to non-union members based in Poland. The NLRB alleges HCL has done that “because employees formed, joined and assisted the Union and engaged in concerted activities, and to discourage employees from engaging in these activities.”
News bites
- Games Industry Biz published a damning story about sexual assault, racism and other abusive behavior at Twitch.
- Google is providing cash awards to 76 startups through a racial equity initiative announced in June.
- White Ops is changing its name because the company just realized, “The name White Ops represents something different than what we’ve intended. It perpetuates a toxic association of good and bad with color and race.”
Picture yourself in the role of CIO at Roblox in 2017.
At that point, the gaming platform and publishing system that launched in 2005 was growing fast, but its underlying technology was aging, consisting of a single data center in Chicago and a bunch of third-party partners, including AWS, all running bare metal (nonvirtualized) servers. At a time when users have precious little patience for outages, your uptime was just two nines, or less than 99% (five nines is considered optimal).
Unbelievably, Roblox was popular in spite of this, but the company’s leadership knew it couldn’t continue with performance like that, especially as it was rapidly gaining in popularity. The company needed to call in the technology cavalry, which is essentially what it did when it hired Dan Williams in 2017.
Williams has a history of solving these kinds of intractable infrastructure issues, with a background that includes a gig at Facebook between 2007 and 2011, where he worked on the technology to help the young social network scale to millions of users. Later, he worked at Dropbox, where he helped build a new internal network, leading the company’s move away from AWS, a major undertaking involving moving more than 500 petabytes of data.
When Roblox approached him in mid-2017, he jumped at the chance to take on another major infrastructure challenge. While they are still in the midst of the transition to a new modern tech stack today, we sat down with Williams to learn how he put the company on the road to a cloud-native, microservices-focused system with its own network of worldwide edge data centers.
Scoping the problem
The long-awaited tech antitrust report that the US Congress released on October 6 presents a remarkably flimsy case for action against the nation’s most innovative and competitive companies.
The report’s main recommendations would do very little to solve real social problems caused by technology, like misinformation and election interference, because these problems aren’t related to competition. And by narrowing its focus to the technology sector, the House Antitrust Subcommittee missed an opportunity to look at parts of the economy—hospitals, insurance providers, food producers—where consolidation and competition are genuine concerns.
In the 451-page report (pdf), more than a year in the making, legislators attempted to answer a seemingly straightforward question: Are Amazon, Apple, Facebook, and Google engaging in anticompetitive practices that government agencies aren’t able to punish under current laws? And if so, what changes should Congress make?
While the report describes a few genuine cases of unfair conduct by the platforms, many of the “problems” it identifies are merely complaints from companies that have been outcompeted. But harming competitors to benefit consumers (by lowering prices, for example) is the very nature of competition.
Most important, the report does not contradict these key facts about the US tech industry: prices are falling, productivity is rising, new competitors are flourishing, employment is outperforming other sectors, and most Americans really like these companies.
Disappointingly, the much-ballyhooed document is riddled with factual errors. For example, it claims that “a decade into the future, 30% of the world’s gross economic output may lie with [Amazon, Apple, Facebook, and Google] and just a handful of others.” But the source for that statistic, a study by McKinsey, actually said that by 2025 (not 2030), revenues from all digital commerce (not just by the Big Four and a few others) might reach 30% of global revenues.
To put in perspective how misleading the report’s original claim was, consider that the combined annual revenue last year of Amazon, Apple, Facebook, and Google represented only about half a percent of global economic output. Such a blatant error is conceivable only in a piece of work that first assumed its conclusion (“Big Tech is taking over the world”) and worked backward from there. There are dozens of other examples like this.
The good
Let’s start with what’s good about the report. It calls for increasing the budgets of the Federal Trade Commission (FTC) and the antitrust division of the Department of Justice, which is long overdue considering that their combined budgets have fallen by 18% (pdf), in real terms, since 2010. If regulators do not have the resources to properly enforce the laws on the books, it’s no wonder that some lawmakers will start calling for changes to those laws.
The report also recommends requiring the FTC to collect more data and report on the state of competition in various sectors. And it says the FTC should conduct retrospectives to study whether its past decisions to approve or block mergers were correct. These kinds of studies are also long overdue and would make enforcement officials better at their jobs.
The FTC is currently engaged in a special review of every acquisition by the Big Five tech companies (those listed above, plus Microsoft) over the last decade. That process should be extended to other sectors and repeated on a regular basis.
Lastly, the report’s proposals for how to increase data portability might work very well for simple forms of data (such as a user’s social graph), which are easier to standardize. If consumers can easily take their data along with them, it will be easier for them to switch to new platforms, giving startups more incentive to enter the market.
The bad
Unfortunately, the report’s primary recommendations would do far more harm than good. The signature proposal is to force dominant platforms to separate their business lines. Chairman David Cicilline, a Rhode Island Democrat, has called this a “Glass-Steagall for the internet,” referring to the 1933 US law (repealed in 1999) that divided commercial from investment banking.
In effect, this proposal would break up tech companies by separating the underlying platform from the products and services sold on it. Google could no longer own Android and offer apps like Gmail, Maps, and Chrome. Amazon could no longer own the Amazon Marketplace and sell its own private-label goods. Apple could no longer own iOS and offer products like Safari, Siri, or Find My iPhone. Facebook could no longer own social-media platforms and use personal data to target ads to users. The upshot is that these moves would destroy tech companies’ carefully constructed ecosystems and make their current business models unviable.
Of course, if this proposal is adopted, there will be many edge cases. Is the iPhone’s flashlight feature part of the operating system or is it more akin to an app? At this point, a flashlight feels like a standard feature of any phone. But not long ago, users had to download third-party apps to achieve that functionality.
As research from Wen Wen and Feng Zhu shows, when an operating system owner like Apple enters a product vertical (such as flashlight apps), third-party developers shift their efforts to other, more difficult-to-replicate app categories. So is adding a flashlight to the OS really anticompetitive behavior from a dominant platform, or is it pro-consumer innovation that leads to better allocation of developers’ time?
The consumer
To justify its proposals, the report would have needed to find a smoking gun (or two). It didn’t. In general, the leading tech companies produce enormous benefits for consumers.
In general, the leading tech companies produce enormous benefits for consumers.
Prices for digital ads have fallen by more than 40% over the last decade, and those savings flow through to consumers in the form of lower prices for goods and services. Prices for books have fallen by more than 40% since Amazon’s IPO in 1997. And Apple’s App Store takes the exact same cut (30%) as other platforms, including PlayStation, Xbox, and Nintendo. In fact, once you account for free apps, effective commission rates in the App Store are in the range of 4% to 7%.
The report’s authors massage the statistics to make tech companies look like monopolies even though they’re not by conventional measures (defined as having greater than two-thirds market share, according to the Department of Justice). They’re all very large businesses, but generally accepted data shows they don’t meet that standard. Amazon has 38% of the e-commerce market. Fewer than half of new smartphones sold in the US are iPhones. In the digital ad market, Google has a 29% share, Facebook has 23%, and Amazon has 10%.
What’s more, consumers themselves say they benefit greatly from the products and services that these companies build. Research in the Proceedings of the National Academy of Sciences has shown that, on average, consumers would need to be paid $17,530 per year to give up search engines, $8,414 per year to give up email, and $3,648 per year to give up digital maps. Meanwhile, the price to access these services is typically zero.
The competition
One of the main themes of the report is that these platforms have become so powerful no new companies dare to challenge them (and no venture capitalists dare to fund potential competitors). Several recent examples belie that notion.
Shopify, which is mentioned only in passing, is a $130 billion e-commerce company that powers more than one million online businesses. The company was founded in 2006, and the stock has risen roughly 1,000% over the last three years. Its most recent earnings report (pdf) showed that total gross merchandise volume on the platform is more than doubling year over year. (By contrast, Amazon’s GMV is growing by about 20% annually.)
To show Facebook’s dominance in the social-media market, the report includes an outdated chart (on page 93) comparing global monthly active users across the leading platforms. The chart puts TikTok at around 300 million monthly active users. But TikTok is a much more formidable competitor to Facebook than the report’s authors seem willing to admit: it recently announced that as of July, it had nearly 700 million monthly active users worldwide. On the same day the report was published, the investment bank Piper Sandler released a study showing that TikTok had surpassed Instagram as US teenagers’ second-favorite social-media app (behind Snapchat).
Zoom is another competitor that’s glossed over in the report. The subscription-based company faced an uphill battle against incumbents such as Google that offer videoconferencing for free (or bundle it with other productivity software). The report notes that in response to Zoom, Google tried to boost its own videoconferencing product, Meet, by introducing a new Meet widget inside Gmail and adding a prompt for Google Calendar users to “Add Google Meet video conferencing” to their appointments.
How have these moves affected Zoom? The company increased its number of daily meeting participants from 10 million in December 2019 to 300 million in April 2020, and its stock is now seven times higher than it was last year (reaching a market valuation of almost $140 billion).
Those aren’t just a few outliers. As Scott Kupor, a venture capitalist at Andreessen Horowitz, pointed out, startups have been booming over the last 15 years in the US. According to data (pdf) from PitchBook, the total annual number of VC deals increased from 3,390 to 12,211 between 2006 and 2019. Deal value increased from $29.4 billion to $135.8 billion. The number of deals at the earliest stage of investment—angel and seed rounds—rose by about a factor of 10 over the same time period (to 5,107 deals worth $10 billion in total value in 2019).
What’s next?
Granted, all the data presented here doesn’t rule out future antitrust cases against the tech companies. The Justice Department and some state attorneys general plan to launch an antitrust case against Google in the coming weeks. The FTC is likely to file suit against Facebook before the end of the year.
If those cases go to court, more sophisticated economic modeling based on non-public data might show that prices would have fallen even faster—or there would have been an even bigger startup boom—had the tech giants in question not been so dominant. But such an outcome would only prove that even if these companies really do harm competition, we don’t need major changes to our antitrust laws to hold them accountable.
To be sure, the scale and scope of tech platforms have created novel problems that our society needs to address, including issues related to privacy, misinformation, radicalization, counterfeit goods, child pornography, the decline of local news, and foreign interference in our elections. But instead of wasting taxpayer resources on a misguided crusade to break up our most innovative companies, Congress should consider passing measures like these:
- Comprehensive federal privacy legislation that addresses the gaps in our current sector-based approach (and avoids the pitfalls of the EU’s General Data Protection Regulation and California’s Consumer Privacy Act).
- Sunshine laws like the Honest Ads Act that help prevent foreign interference in future elections and make digital political ads more transparent.
- Reform for the intellectual-property dispute process to reduce the prevalence of counterfeit goods online and prevent tech giants from copying genuinely innovative products.
- Direct subsidies for the provision of local news, funded via broad-based taxes.
Unfortunately, changing our antitrust laws as the House Judiciary Committee recommends would fix none of the social issues caused by Big Tech. Each problem needs a targeted regulatory solution, not the big stick approach of “break them up.”
Alec Stapp is the director of technology policy at the Progressive Policy Institute, a center-left think tank based in Washington, DC.
In a national database in Argentina, tens of thousands of entries detail the names, birthdays, and national IDs of people suspected of crimes. The database, known as the Consulta Nacional de Rebeldías y Capturas (National Register of Fugitives and Arrests), or CONARC, began in 2009 as a part of an effort to improve law enforcement for serious crimes.
But there are several things off about CONARC. For one, it’s a plain-text spreadsheet file without password protection, which can be readily found via Google Search and downloaded by anyone. For another, many of the alleged crimes, like petty theft, are not that serious—while others aren’t specified at all.
Most alarming, however, is the age of the youngest alleged offender, identified only as M.G., who is cited for “crimes against persons (malicious)—serious injuries.” M.G. was apparently born on October 17, 2016, which means he’s a week shy of four years old.
Now a new investigation from Human Rights Watch has found that not only are children regularly added to CONARC, but the database also powers a live facial recognition system in Buenos Aires deployed by the city government. This makes the system likely the first known instance of its kind being used to hunt down kids suspected of criminal activity.
“It’s completely outrageous,” says Hye Jung Han, a children’s rights advocate at Human Rights Watch, who led the research.
Buenos Aires first began trialing live facial recognition on April 24, 2019. Implemented without any public consultation, the system sparked immediate resistance. In October, a national civil rights organization filed a lawsuit to challenge it. In response, the government drafted a new bill—now going through legislative processes—that would legalize facial recognition in public spaces.
The system was designed to link to CONARC from the beginning. While CONARC itself doesn’t contain any photos of its alleged offenders, it’s combined with photo IDs from the national registry. The software uses suspects’ headshots to scan for real-time matches via the city’s subway cameras. Once the system flags a person, it alerts to the police to make an arrest.
The system has since led to numerous false arrests (links in Spanish), which the police have no established protocol for handling. One man who was mistakenly identified was detained for six days and about to be transferred to a maximum security prison before he finally cleared up his identity. Another was told he should expect to be repeatedly flagged in the future even though he’d proved he wasn’t who the police were looking for. To help resolve the confusion, they gave him a pass to show to the next officer that might stop him.
“There seems to be no mechanism to be able to correct mistakes in either the algorithm or the database,” Han says. “That is a signal to us that here’s a government that has procured a technology that it doesn’t understand very well in terms of all the technical and human rights implications.”
All this is already deeply concerning, but adding children to the equation makes matters that much worse. Though the government has publicly denied (link in Spanish) that CONARC includes minors, Human Rights Watch found at least 166 children listed in various versions of the database between May 2017 and May 2020. Unlike M.G., most of them are identified by full name, which is illegal. Under international human rights law, children accused of a crime must have their privacy protected throughout the proceedings.
Also unlike M.G., most were 16 or 17 at time of entry—though, mysteriously, there have been a few one- to three-years-olds. The ages aren’t the only apparent errors in the children’s entries. There are blatant typos, conflicting details, and sometimes multiple national IDs listed for the same individual. Because kids also physically change faster than adults, their photo IDs are more at risk of being outdated.
On top of this, facial recognition systems, under even ideal laboratory conditions, are notoriously bad at handling children because they’re trained and tested primarily on adults. The Buenos Aires system is no different. According to official documents (link in Spanish), it was tested only on the adult faces of city government employees before procurement. Prior US government tests of the specific algorithm that it is believed to be using also suggest it performs worse by a factor of six on kids (ages 10 to 16) than adults (ages 24 to 40).
All these factors put kids at a heightened risk for being misidentified and falsely arrested. This could create an unwarranted criminal record, with potentially long-lasting repercussions for their education and employment opportunities. It might also have an impact on their behavior.
“The argument that facial recognition produces a chilling effect on the freedom of expression is more amplified for kids,” says Han. “You can just imagine a child [who has been falsely arrested] would be extremely self-censoring or careful about how they behave in public. And it’s still early to try and figure out the long-term psychological impacts—how it might shape their world view and mindset as well.”
While Buenos Aires is the first city Han has identified using live facial recognition to track kids, she worries that many other examples are hidden from view. In January, London announced that it would integrate live facial recognition into its policing operations. Within days, Moscow said it had rolled out a similar system across the city.
Though it’s not yet known whether these systems are actively trying to match children, kids are already being affected. In the 2020 documentary Coded Bias, a boy is falsely detained by the London police after live facial recognition mistakes him for someone else. It’s unclear whether the police were indeed looking for a minor or someone older.
Even those who are not detained are losing their right to privacy, says Han: “There’s all the kids who are passing in front of a facial-recognition-enabled camera just to access the subway system.”
It’s often easy to forget in debates about these systems that children need special consideration. But that’s not the only reason for concern, Han adds. “The fact that these kids would be under that kind of invasive surveillance—the full human rights and societal implications of this technology are still unknown.” Put another way: what’s bad for kids is ultimately bad for everyone.